It certainly is true that a rising stock market, over a long period of time, is a good thing.

But does that mean it is always a good development if the stock market has a big jump in one day? Or is it unambiguously bad news if there’s a significant one-day drop in financial markets?

I’ve been pondering this issue because recent stock market gyrations have triggered predictable finger pointing by politicians and pundits. Indeed, the past few days have been somewhat similar to the blame game that took place during the TARP bailout fight. Republicans and Democrats often have the same message: Any upward blip in markets is because “my side” did something good and any fall is because “your side” did something bad.

But so what? I certainly don’t pretend to be anything other than a policy wonk, so maybe people with real experience in financial markets can tell me that I’m way off base, but here are a couple of reasons why a short-term jump in the stock market might be a sign of bad news.

1. What if the Federal Reserve suddenly reveals that it intends to pursue an aggressive, easy-money policy? One likely result of such an announcement is that investors will pull money out of bonds, because of an expectation in the short run of lower interest rates (and therefore lower returns), and put that money into stocks.

Would that rising stock market be a sign of good economic policy, or would it just be a result of portfolio shifting, probably followed by weaker economic performance?

2. What if the Treasury Department announces that it will pay every underwater mortgage in the country. I wouldn’t be surprised if that was followed by a big jump in the stock market, led by financial companies such as banks.

Would that jump in stocks be a sign of good economic policy, or would it simply measure the value of a one-time wealth transfer from taxpayers to bank shareholders, probably followed by weaker economic performance?

My gut instinct is that these are examples of bad economic policies leading to short-term jumps in stocks. And this is why I try to avoid predicting markets when being interviewed.

But, if nothing else, I try to unleash a good one-liner during every interview. Here are two recent appearances, where I mention the “Sword of Damocles of big government” and “another Keynesian who’s been rattling around the revolving door of Washington and Wall Street.”

But what’s happening now is not just some left-wing punks engaging in political street theater. Instead, the U.K. is dealing with a bigger problem of societal decay caused in part by a government’s failure to fulfill one of its few legitimate functions – protection of property.

To make matters worse, the political class has disarmed law-abiding people, thus exacerbating the risks. These two photos are a pretty good summary of what this means. On the left, we have Korean entrepreneurs using guns to defend themselves from murdering thugs during the 1992 LA riots. On the right, we have Turkish entrepreneurs reduced to using their fists (and some hidden knives, I hope) to protect themselves in London.

Which group do you think has a better chance of surviving when things spiral out of control? When the welfare state collapses, will the Koreans or the Turks be in a better position to protect themselves? And what does it say about the morality of a political class that wants innocent people to be vulnerable when bad government policies lead to chaos?

Speaking of chaos, let’s look at the “root causes” of the riots and looting in the United Kingdom.

Allister Heath is the Editor of City A.M. in London, and normally I follow his economic insights, but his analysis of the turmoil is superb as well. Here’s an excerpt. But as Instapundit likes to say, read the whole article.

Debilitating, widespread fear. The country held to ransom by feckless youths. Thousands of shocked Londoners cowering in their homes, with many shops, banks and offices shutting early. …It no longer feels as if we live in a civilised country. The cause of the riots is the looters; opportunistic, greedy, arrogant and amoral young criminals who believe that they have the right to steal, burn and destroy other people’s property. There were no extenuating circumstances, no excuses. …decades of failed social, educational, family and microeconomic policies, which means that a large chunk of the UK has become alienated from mainstream society, culturally impoverished, bereft of role models, permanently workless and trapped and dependent on welfare or the shadow economy. For this the establishment and the dominant politically correct ideology are to blame: they deemed it acceptable to permanently chuck welfare money… Criminals need to fear the possibility and consequence of arrest; if they do not, they suddenly realise that the emperor has no clothes. At some point, something was bound to happen to trigger both these forces and for consumerist thugs to let themselves loose on innocent bystanders. …the argument made by some that the riots were “caused” or “provoked” by cuts, university fees or unemployment is wrong-headed. …the state will spend 50.1 per cent of GDP this year; state spending has still been rising by 2 per cent year on year in cash terms. It has never been as high as it is today – in fact, it is squeezing out private sector growth and hence reducing opportunities and jobs. …This wasn’t a political protest, it was thievery. …We need to see New York style zero tolerance policing, with all offences, however minor, prosecuted. But what matters right now is to regain control, to stamp out the violence and to arrest, prosecute and jail as many thugs as possible. The law-abiding mainstream majority feels that it has been abandoned and betrayed by the establishment and is very, very angry.